The effects of changes in extracellular potassium (K) concentration on synaptic transmission were studied at the squid giant synapse with intracellular recording from the presynaptic terminal and the postsynaptic axon. The amplitudes of both the presynaptic spike and the EPSP varied inversely with extracellular K. On the average, a 10 mV change in spike height was accompanied by a 3.1 mV change in EPSP amplitude. The amplitude of the presynaptic spike after-hyperpolarization varied inversely with extracellular K. On the average, increasing extracellular K resulted in a 20 percent change in EPSP amplitude per mV change in presynaptic spike after-hyperpolarization. The effect of extracellular K on EPSP amplitude appears to be mediated by changes in the amplitude of the presynaptic spike.